JPMorgan earned $1.42 a share, excluding various items, up 1% vs. a year earlier. Analysts polled by Thomson Reuters expected a 9% drop to $1.17.

But including extraordinary items, the No. 1 U.S. bank lost money for the first time under Chairman and CEO Jamie Dimon, off $380 million, or 17 cents a share, compared with $5.7 billion or $1.40 per share earned one year ago. It added $7.2 billion to its litigation reserves for a total of $23 billion. JPMorgan recently agreed to pay the U.S. and U.K. $1.3 billion for its handling of the "London Whale" derivatives trades that resulted in a $6.2 billion reduction in earnings.

Litigation Costs 'Volatile'

JPMorgan is negotiating with state and federal officials to settle allegations in its mortgage unit, with talk that it could be $11 billion. It also faces federal criminal probes into its mortgage bond sales and energy trading business, as well as an investigation over Asia hiring practices.

"While we expect our litigation costs should abate and normalize over time, they may continue to be volatile over the next several quarters," Dimon said.

Wells Fargo earned 99 cents a share, up 12.5% vs. a year earlier and 2 cents above views. Some noted the beat reflected a further reduction in loan loss reserves.

The No. 1 U.S. home lender's mortgage applications dived to $87 billion vs. $146 billion a year ago. JPMorgan also reported a sharp drop in mortgage activity.

Refinancing has plunged since early May as mortgage rates rose off historic lows. Demand for loans to buy a home also fell.

Wells Fargo already has axed 3,000 jobs in its mortgage origination and servicing departments. JPMorgan, Bank of America (BAC) and other major lenders have shed mortgage jobs too.

Wells will "have some challenge with mortgage activity decreasing," said Greg Harrison at Thomson Reuters.

Core Capital Rises

Wells' Tier 1 common-equity ratio rose to 9.54%, topping its own 9% goal for the key capital measure. Wells said it'll seek regulatory approval to further hike its dividend and stock buybacks after next year's stress tests.

Wells also faces legal hurdles. It agreed on Sept. 30 to pay $869 million over certain loans sold to Freddie Mac before 2009. New York Attorney General Eric Schneiderman says he plans to sue Wells for allegedly not complying with last year's $25 billion mortgage-servicing settlement.

Chris Mutascio at Keefe, Bruyette & Woods said while investors would have liked JPMorgan to put its legal troubles behind it, executives did the next best thing by disclosing the elevated reserves.

"They did a decent job this quarter trying to explain the best they can without the settlement," Mutascio said, adding that while JPMorgan's trading fell in Q3, it likely wasn't as bad as feared.

Citigroup (C) and BofA fell fractionally. Goldman Sachs (GS) and Morgan Stanley (MS) rose 1%. All four report earnings this week, along with several smaller banks.